CFTC meeting with the Coalition for Derivatives End-Users

Earlier this week, as part of the Coalition for Derivatives End-Users, CMC met with several CFTC staff. The topic of discussion was the CFTC’s proposed rule on margin requirements. Comments on this rule are due on Monday, July 11, and CMC will be submitting comments to the CFTC as well as the Prudential Regulators. Among the major topics discussed at the meeting were the CFTC’s legal authority to impose margin on end-users, inter-affiliate trades and eligible collateral. Most of the market participants present at the meeting weighed in strongly on these and other margin-related topics.

CMC specifically talked about the importance of the affiliates issue to our members. We emphasized that requiring Swap Dealers and Major Swap Participants to post collateral with regard to inter-affiliate swaps is unnecessary because such swaps are risk allocation tools that do not increase a corporate enterprise’s outward counterparty risk exposure. We also said that inter-affiliate swap transactions should be exempt from recordkeeping and reporting requirements, as such requirements are unnecessary and onerous for these transactions, and provide little benefit to the regulators. CMC also reminded CFTC staff that Sen. Blanche Lincoln (Democrat – Arkansas) had expressly stated as then Chair of the Agriculture Committee in 2010 that end-users should not have margin requirements imposed on them.

It was quite evident that the CFTC hadn’t thought deeply about the affiliates issue and they admitted that they don’t really have a clear definition for what constitutes an affiliate transaction. Given how many industry coalitions cutting across various industrial sectors have weighed in on margin-related issues, we hope and expect – although we can never be certain – that the CFTC takes into account at least some of industry’s legitimate concerns and comments before promulgating their final rule on the subject.

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